![]() ![]() investment must fall, bringing down both the capital account surplus and the trade deficit. Reducing the fiscal deficit, according to Shultz and Feldstein, causes total U.S. Governments usually spend more than they receive in revenues, and the fiscal deficit is a measure of this excess, or of government dissaving. savings, of course, consist of the sum of household savings, business savings, and government savings. 1 It also runs a capital account surplus equal to the gap because this is the amount of net foreign capital inflow that bridges the gap, and the trade account and the capital account for any country must always balance to zero. savings, and the United States runs a trade deficit that is by definition equal to the gap between investment and savings. This is where these arguments can get terribly confused. However, accounting identities do not tell us the direction in which causality flows, and so all identity-based arguments must implicitly make assumptions about which of the variables drive the other. The model Shultz and Feldstein use is the same model, on the surface, that I and most other trade economists use, and is built around accounting identities that can never be violated. This view is also the mainstream view, but it is based on implicit assumptions concerning trade that I would argue have become obsolete. The Mainstream View: The Savings Account Drives the Capital Account ![]() Control that spending and you will control trade deficits. If we manage to negotiate a reduction in the Chinese trade surplus with the United States, we will have an increased trade deficit with some other country.įederal deficit spending, a massive and continuing act of dissaving, is the culprit. If a country consumes more than it produces, it must import more than it exports. secretary of labor, treasury, and state, and Feldstein, whose recent article in Project Syndicate I wrote about in a Bloomberg piece two weeks later, is a professor of economics at Harvard University, former chairman of the Council of Economic Advisers, and president of the National Bureau of Economic Research. Shultz and Martin Feldstein explained, according to the headline of their Washington Post article, “everything you need to know about trade economics, in 70 words.” Shultz is a former U.S.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |